A personal finance expert has warned that savers with £20,000 in an average instant access account at a high street bank are earning around £190 a year, when they could be earning as much as £764.
Anna Macdonald, investment strategy director at Hargreaves Lansdown, said the gap between the two figures represents a significant missed opportunity for UK savers. The warning comes as markets continue to adjust to expectations that borrowing costs will stay higher than many had previously anticipated.
Higher yields and market uncertainty
Macdonald told Sky Money: “The bigger question is how long these higher yields persist. Much will depend on inflation, economic growth and the global backdrop. Those factors are difficult to predict, but for now it appears markets are expecting borrowing costs to stay higher than many people had anticipated.”
She advised investors to “avoid making knee-jerk decisions” in response to market moves. “While rising yields can create short-term volatility, they have also improved the income available from cash, bonds and other lower-risk assets.”
“Investors who can buy gilts directly and hold to maturity can now lock into higher yields, and for UK retail investors, these gains are exempt from capital gains tax,” she added.
Bond strategies and CGT exemptions
Macdonald also explained that investors might choose to buy low-coupon bonds and hold them to maturity, where more of the return comes in the form of a capital gain, to make the most of the capital gains tax exemption. However, she warned these were more vulnerable to price volatility, meaning if you did need to sell before the bond matured, you would be exposed to its price moves.
“Diversification remains important, and investors should make sure their portfolio matches their long-term goals and attitude to risk,” she said.
Splitting savings across goals
Harriet Guevara, chief savings officer at Nottingham Building Society, said: “This is a reminder that inflation still matters. Even small increases can erode the spending power of cash over time, so it is worth checking that savings are held in an account paying a competitive rate and that the account still matches the level of access needed.”
Guevara recommended splitting savings across different goals to help balance flexibility and certainty. “Easy-access accounts may suit an emergency fund or short-term plans, while fixed-rate accounts can provide more reassurance for money you will not need straight away - and are particularly competitive at the moment for those able to lock money away,” she said.
